Archive for November 2010
QE2 and the Great Mis-Diagnosis
by Jim Willie CB
Originally published: November 24, 2010
Use the above link to subscribe to the paid research reports, which include coverage of critically important factors at work during the ongoing panicky attempt to sustain an unsustainable system burdened by numerous imbalances aggravated by global village forces. An historically unprecedented mess has been created by compromised central bankers and inept economic advisors, whose interference has irreversibly altered and damaged the world financial system, urgently pushed after the removed anchor of money to gold. Analysis features Gold, Crude Oil, USDollar, Treasury bonds, and inter-market dynamics with the US Economy and US Federal Reserve monetary policy.
THE BACKDROP HAS TURNED DIRE ON SEVERAL FRONTS SIMULTANEOUSLY. The great millstone around the USEconomy’s neck continues to drag it down. CoreLogic reported 2.1 million units have created a swamp in Shadow inventory of the housing market. That equates to 23 months inventory, whereas normal is 7 months. They tallied the growing tumor of bank owned properties as a result of home foreclosures, also called the REOs (real estate owned). Look for no housing market recovery for at least another two years.
Starting in summer 2007, the Jackass forecast each year has been for another two years of housing market declines, all correct. Ireland might be squarely in the news, but the big enchalada is Spain. The Irish banks have presented a grand headache for the European banks, with a $150 billion exposure. Ironically, Ireland has done more to reduce its budget spending effectively than any EU member nation, yet is left to twist in the soft rain. They cut their government budget by 20%. The USGovt budget grows every year without remedy or remorse. Few seem to remember that Irish fund managers lost the German civil service pension funds a couple years ago, a source of hidden tension and great resentment. Spain will rock Europe and the Euro currency in the springtime. The gold price consolidation will center on the Spain debt crisis hitting fever pitch, with the Euro hit. Then again, perhaps a mammoth new wave of European gold demand will neutralize any USDollar stability. On Tuesday this week, the Euro fell by 200 basis points, but the gold price was stable like a rock. That is notable strength. But the bigger story of strength is with silver. The round robin of destruction to major currencies that makes the Competing Currency War, the race to the bottom in rotated currency debasement, it will lift gold & silver in a round robin of strong demand.
MISDIAGNOSIS: INSOLVENCY NOT ILLIQUIDITY
The US bankers often go home to mommy and order a giant slosh of monetary inflation whenever in deep intractable trouble, like after the previous mistake in QE1 when ordering a giant slosh of monetary inflation. The USFed, led by the academic professor with no business experience, has ordered a fresh supply of gasoline from a lit fire hose, but he does so on a collapsing building. Bernanke has very erroneously diagnosed lack of liquidity within the system to be the underlying problem. He has prescribed a huge swath of ‘free money’ to be sent into the bond market as a solution. He has prescribed that cheap money continue to be delivered to the USEconomy. Bernanke has failed to notice the insolvency in banks, and has failed to notice that 0% has yet to prompt any revival in lending among banks. Bernanke is fighting INSOLVENCY with LIQUIDITY for a second time after learning nothing the first time.
The USTreasury 10-year yield has risen from a grand bond market dare, not at all from evidence of growth. Bond players dare the USFed to create another $1 trillion in new money. In no way does another lift in retail spending constitute a recovery. Household insolvency rises every month from worsening home loan balances. The USFed wants households to spend more on borrowed funds, yet they have depleted home equity and vanished income security.
For Europe’s future, Spain is all that matters
by Gonzalo Lira
Posted originally November 23, 2010
http://gonzalolira.blogspot.com/2010/11/for-europes-future-spain-is-all-that.html
Last Spring it was Greece that was in crisis mode – then last week, it was Ireland – and coming up next is Portugal – but all those pale in comparison to Spain.
IF I HAD TO BET ON WHICH COUNTRY WILL BRING ABOUT THE END OF THE EURO—and perhaps even the end of the European Union—I’d have to say it’s Spain.Right now, no one is talking about Spain—Spanish spreads are as quiet as a guilty man in a police line-up—everyone’s too concerned over Ireland, and the upcoming Portuguese Situation.
But Spain is the key—Spain is what you should be paying attention to, if you want to find out what will happen to the European Monetary Union (EMU), and the European Union (EU) itself.
First, a recap of last week’s exciting episode of I’m an Insolvent Nation—Get Me Out Of Here!:
Ireland got into trouble with the Euro bond markets after German Chancellor Angela Merkel made some not-very-clever remarks about Irish bond-holders needing to take some haircuts. The bond markets started to panic—yields on Irish debt started to widen—and then once again, it’s Sovereign Debt PanicTime™ (patent pending).
The EU in conjunction with the European Central Bank (ECB) and the International Monetary Fund (IMF) put together a rescue package—but the Irish refused to take it, as they realized they would have to give up some of their hard-won sovereignty in exchange for this lifeline. To accede to this package, they’d likely have to slash government expenditures, take on “austerity measures”, and likely raise their precious 12.5% corporate income tax rate, which has been the carrot the Irish have used to get so much foreign investment over the last decade.
But the Irish deterioration in the bond markets began to pick up speed—finally on Sunday night, after a week of dithering, Irish Prime Minister Brian Cowen officially asked the European Union for a bail out.
(A quick explanation for the layman, as to why the bond markets are so important: Because Ireland is running a deficit, it needs to sell bonds—that is, borrow money—in order to finance its fiscal shortfall. If the bond markets do not have much faith that Ireland will pay back the bonds it emits, then the price of Irish bonds will go lower, which means the yields will go higher. In other words, Ireland will be forced to pay more for the money it is borrowing. The more it has to pay to borrow money, the greater the deficit, until finally, you get to the point where you cannot borrow enough to cover your deficit: In other words, you go broke. This was what was happening to Ireland, in simplified terms.)
Just like they did with Greece, the European officials colossally fucked up the bail-out package for Ireland. It turns out that—far from having put together a detailed package that could be swiftly implemented, and thereby restore confidence—the EU/ECB/IMF troika have only a flimsy framework for the Irish bailout. The vaunted European Financial Stability Facility? It’s not even fully funded yet!
So on Monday, the markets were jubilant—“Ireland is saved! Crisis averted!”—but then today Tuesday, they’re down in the dumps, as it is becoming increasingly clear how unprepared the European officials are. Their “rescue package” is vague on the details—to put it mildly.
Coupled to that, the bail-out announcement sparked a political fire-storm in Ireland—Cowen’s coalition partners, the Green Party, exited the government, and elections are now scheduled for January. There are even calls from Cowen’s own party for his immediate resignation.
This is bad enough—so what does the IMF go and do? Why, with exquisite political tone-deafness, it sends the clear message that Ireland is going to have to crawl if it wants the bail out: John Lipsky, a muckety-muck in the IMF, says to Reuters that “our work there [in Ireland] is technical, not political. Decisions have to be made by [the Irish] government.” In other words, the IMF isn’t going to negotiate with Ireland—it’s going to dictate.
Or in other words, the IMF is saying, Beg for the money, you Irish bitches!
What you are witness to is… Adults acting like children
by Jim Sinclair
Posted originally 26 Nov 2010
“Nothing will unnerve the paper gold shorts more quickly and do more to undercut their confidence than to strip them of the real metal and force them to come up with more hard gold bullion to make good on deliveries. “Stand and Deliver or Go Home” should be the rallying cry of the gold longs to the paper gold shorts.” –Trader Dan Norcini
Dear Comrades In Golden Arms,
A currency war solves absolutely nothing whatsoever.
A currency war puts extreme strains on exports.
A currency war never establishes a currency’s value versus its trading partners than can be maintained for any meaningful period of time.
A currency war creates currency levels that have nothing to do with reality economically and are unsustainable.
A currency war is endemic to QE in the entire Western world.
A currency war is destructive to all.
A currency war may cause gold to sell off like today in one currency, but it also causes gold to rise in others.
A currency war in time elects gold as the only viable currency.
A currency war is exactly what will give you levels of the gold price forecasted by Armstrong and Alf that are well above what we have looked at for over 8 years.
A currency war is what Merkel declared in her negative speech a few days ago concerning the euro.
A currency was is what the children running our monetary affairs have entered into.
A currency war is akin to children on the playground playing Keep Away.
A currency war’s game of Keep Away is to keep away prosperity.
It is absurd to believe that the U.S. dollar will be a safe haven over the intermediate term
An even more absurd belief is the one that puts U.S. dollar and U.S. debt as a safe haven. There is not any convincing economic evidence that the U.S. dollar is well managed, and there is no reason to believe that the dollar will rise in value. In fact, it is the U.S. governments’ intention to devalue the dollar and to print money to avoid a deflation in the U.S. Why do some global commentators see the dollar as a safe haven? In our opinion, the only safe haven is precious metals, energy, food and other assets which will hedge against the inevitable inflation that the above policies create.
We wish everyone an enjoyable holiday.
Respectfully yours,
Jim
Crisis of Fiat Currencies: US Dollar Surpluses converted into Gold… China, Russia, Iran are Dumping the Dollar
by Bob Chapman
Posted on Global Research, November 22, 2010
http://globalresearch.ca/index.php?aid=22031&context=va
Something is going on that your government does not want you to know about. Very few journalists have written about it and little or nothing has appeared in the mainstream media. The story could be one of major stories of our time.
WESTERN POWERS HAVE TRIED TO DESTROY GOLD AS A BACKING FOR CURRENCIES for many years. Presently the major media won’t touch the story and that is understandable. Something we have been writing about for years is the Shanghai Cooperation Organization known as SCO. Few have been listening and few have been interested in what their mission is and what they have been up to.
Some of the members are large oil producers and some, like China, are large oil users. Some have very large US dollar surpluses. As well, some are large commodity and gold and silver buyers. In fact, members are in a great part responsible for driving these prices higher. It is debatable, but we believe there is a conscious effort to accumulate gold and silver, dump dollars and to back their currencies with gold.
China and Russia are both large gold producers and for a number of years have been buying up domestic gold and silver production, so that it never reaches the market and does not affect prices. If anything the absence of sales tends to push the markets higher. As a matter of fact Russia and India are visible buyers. Even Iran with its oil surplus recently announced that they had purchased 340 tons of gold. Their recent gold purchases are very significant as affiliate members, which have access to the present and ultimate direction of the group. You might say buying gold has been a protective effort to shield members and close observers from the problems generated by dollar policies. They are accumulating gold, as many have been worldwide, for the past ten years, but particularly over the past few years.
This buying, for protection, has served to thwart the efforts of US policymakers, the Treasury, other central banks in Europe and the Fed, from being able to continue the blatant suppression of both gold and silver prices. The malefactors, except for forays into derivatives and futures, which are transitory, have lost control and suppression of gold and silver prices, and it is only a matter of time before all visages of any control will be visible. Since 1988, in August when Present Reagan signed the Executive Order creating, “the President’s Group on Financial Markets” and the subsidiaries that have grown out of that policy, that the Treasury won many if not most of the battles.
The SCO in part changed that and now they and the public are winning the war for a fair and free gold and silver market. The current class action lawsuits, including RICO, are a testament to the market manipulation in silver, which is finally coming to an end. HSBC and JPMorgan Chase, the latter that is the major owner of the Fed, are going to be finally prohibited from rigging these markets. Their officers all belong in jail, but elitists never go to jail; they pay fines, and keep right on robbing the public.
Economic Implosion sets the Blame Game in motion
By Giordano Bruno
Posted at Neithercorp Press, Nov 19, 2010
WHEN A CHILD BOUNDS ABOUT THE HOUSE AND BREAKS HIS MOTHER’S FAVORITE flower vase or creepy ‘Precious Moments’ figurine, he usually blames the dog before he blames himself. We tend to learn the value of scapegoats at a very early age. Many people eventually outgrow this terrible habit and begin to take responsibility for their actions, while others never do.
The ability to divert justice is frowned upon by those of us who value conscience, but in some circles, such “talent” is prized above all else. There are some in this world who derive great joy from creating destruction and allowing innocent men or guiltless groups to take the fall.
The Italian philosopher/elitist extraordinaire, Niccolo Machiavelli, often discussed the “virtue” of the scapegoat. In his treatise ‘The Prince’ (essentially a guidebook for the tyrants of the 16th century) he outlined how to manipulate the rage of the masses towards the ends of the state (or royalty, or dictatorship, or autocracy, etc.) Though a soulless cretin of the highest order, Machiavelli was ahead of his time in one sense; he recognized before many others that a storm was brewing against the traditional rule of iron fisted monarchy. The world was changing, and the threat of violence and death was not going to be enough to keep the elites in power. The common people were beginning to awaken, to educate themselves, to demand their inherent right to freedom, not just in small controllable pockets, but all over the globe. The ruling class had to adapt its methods to this awakening by turning away from brute force and towards more psychologically rooted tactics. The use of a proxy became a valuable method for the elites in creating the illusion of judgment on government criminality, while at the same time allowing the same men behind the criminality to maintain their “savior” status in the public eye.
Machiavelli suggested throwing middle-management thugs to the angry hoards, while the true heads of state, the men who gave those thugs their orders, remained untouched. There are, however, many variations to this scheme. When you are a group that heads the central banking apparatus of a nation or many nations, when you control the core mechanisms (its currency and interest rates) by which a country financially rises and falls, and you cause that country to fall, you had better have a host of backup patsies to take the pitchforks and bullets coming your way.
Let’s look at some of the probable redirections and excuses that we will be hearing from government and the mainstream media in the next couple of years as the world’s fiscal stability takes a long swan dive into the shallow end of the pool.
Read the rest of this entry »
Preparing for the Big One, coming soon…
by Deepcaster
Originally posted Nov 24, 2010
The pace and severity of financial crises has taken an ominous turn for the worse…. With one crisis seemingly begetting another, and the fuse between crises now getting shorter and shorter, the world economy is on a very treacherous course.” –Stephen Roach, Morgan Stanley, May, 2010
“Wherever we look at the world economy today, we see a wall of risk… and potential financial catastrophe. We see a large number of virtually bankrupt major sovereign states (US, UK, Spain, Italy, Greece, Japan and many more) teetering atop a financial system that is bankrupt, but is temporarily kept alive with phony valuations and unlimited money printing… The consequence of this rescue mission will be a hyperinflationary depression in many countries, due to many currencies becoming worthless.”
–“The Sovereign Debt Disaster”, Egon von Greyerz – Matterhorn Asset Management Zurich, February 23, 2010
“…full force of the economic crisis will hit us next year… The problem will get bigger before things can get better…”
–Angela Merkel, German Chancellor, November 11, 2009
“What this crisis reveals is a broken financial system like no other in my lifetime”
–Paul Volcker, Former Chairman, U.S. Federal Reserve, November 16, 2008
“This is going to be one of the worst economic downturns since the Great Depression.”
–Nobel Laureate Economist Joseph Stiglitz, April 25, 2008″
“Right now, the rest of the world owns $3 trillion more of us than we own of them. In my view, it will create political turmoil at some point. Pretty soon, I think there will be a big adjustment.”
–Warren Buffet, speaking at the University of Nevada, Reno, January, 2006
“We’re clearly on an imprudent and unsustainable fiscal path. Our current liabilities and unfunded commitments as of the end of the last fiscal year amounted to over $43 trillion, up to $13 trillion in one year alone.”
–David Walker, U.S. Comptroller General, April 11, 2005
“America has no better than a 10% chance of avoiding economic “Armageddon.”
–Stephen Roach, Chief Economist, Morgan Stanley, Boston Herald, November 23, 2004
Quantum Pranx 